Valuation of private companies is much more subjective than public companies because there is no free trading marketplace for the private companies’ stock.  Just like a champion Olympic figure skater, the performance has to be flawless.  Take a look at the following check list – see if the target company rates near perfect (on a scale of 1 to 10 – 10 being best): • Stable Market • Stability of Earnings Historically • Realized Cost Savings After Purchase • No Significant Capital Expenditures Herewith • No Significant Competitive Threats • No Significant Alternative Technologies • Large Market Potential • Reasonable Market Position • Broad-based Distribution Channels • Synergy Between Buyer and Seller • Sound Management Willing To Remain • Product Diversity • Wide Customer Base • Non-dependency on Few Supplier … [Read more...]

Who best understands my business? When interviewing intermediaries to represent the sale of your firm, it is important that you discuss your decision process for selecting one. Without this discussion, an intermediary can’t respond to a prospective seller’s concerns. Are there any potential buyers? When dealing with intermediaries, it always helps to reveal any possible buyer, an individual or a company, that has shown an interest in the business for sale. Regardless of how far in the past the interest was expressed, all possible buyers should be contacted now that your company is available for acquisition. People who have inquired about your company are certainly top prospects. Lack of communication? It is critical that communication between the seller, or his or her designee, and the intermediary involved in the sale, be handled promptly.  Calls should be taken by both sides.  If either side is busy or out of the office, the call should be returned as quickly as possible. Does … [Read more...]

• They neglect to run their business during the sales process. – The owner of a business with sales under the $20 million range can get so involved in the selling process that they neglect the day-to-day operation of the business. • They don’t understand the “real” value of their business. – A business may actually command a higher price than the value determined by an appraiser.  The business may be worth more than the sum of its parts.  A professional intermediary, along with other advisors, can answer the question of real value and help determine a “go-to-market” price. • They aren’t flexible in structuring the transaction. – In many cases, how the deal is structured is more important than the price or terms. • They are not looking at the business from a buyer’s perspective. – Buyers may look for different aspects of a business than those the seller looks for.  For example: growth potential, management depth, customer base, etc. • They start with too high a price. – Sellers … [Read more...]

Since one often hears the term “fair value” or “fair market value,” it would be easy to assume that “fairness opinion” means the same thing.  A fairness opinion may be based to some degree on fair market value, but there the similarities end.  Assume that you are president of a family business and the other members are not active in the business, but are stockholders; or you are president of a privately held company that has several investors/stockholders.  The decision is made to sell the company; and you as president are charged with that responsibility.  A buyer is found; the deal is set; it is ready to close -- and, then, one of the minority stockholders comes out of the woodwork and claims the price is too low.  Or, worse, the deal closes, then the minority stockholder decides to sue the president, which is you, claiming the selling price was too low.  A fairness opinion may avoid this or protect you, the president, from any litigation. A fairness opinion is a letter, usually … [Read more...]

Many business owners are unfamiliar with the dynamics of selling a company, because they have never done so. There are numerous possible “deal breakers.”  Being aware of the following pitfalls and their remedies should help prevent the possibility of an aborted transaction. Neglecting the  Running of Your Business A major reason companies with sales under $20 million become derailed during the selling process is that the owner becomes consumed with the pending transaction and neglects the day to day operation of the business.  At some time during the selling process, which can take six to twelve months from beginning to end, the CEO/owner typically takes his or her eye off the ball.  Since the CEO/owner is the key to all aspects of the business, his lack of attention to the business invariably affects sales, costs and profits.  A potential buyer could become concerned if the business flattens out or falls off. Solution:  For most CEOs/owners, selling their company is one of the most … [Read more...]

The deal is done and you have completed the closing.  Now what do you do?  You help the new owner because chances are that you have some vested interest in the new entity, and it is in your best interest that the new owner is successful. For example: – there may be an escrow account due you. – the buyer may have given you a note. – you may be the landlord, and the buyer the tenant. – your name remains on the company letterhead, and your personal reputation continues to be associated with the business. – your former employees depend on you to have made the right decision in selling to the particular buyer, thus preserving their jobs. … [Read more...]

If you are seriously considering selling your company, you have no doubt considered using the services of an intermediary.  You probably have wondered what you could expect from him or her.  It works both ways.  To do their job, which is selling your company; maximizing the selling price, terms and net proceeds; plus handling the details effectively; there are some things intermediaries will expect from you.  By understanding these expectations, you will greatly improve the chances of a successful sale. Here are just a few: • Next to continuing to run the business, working with your intermediary in helping to sell the company is a close second.  It takes this kind of partnering to get the job done.  You have to return all of his or her telephone calls promptly and be available to handle any other requests.  You, other key executives, and primary advisors have to be readily available to your intermediary. • Selling a company is a group effort that will involve you, key executives, and … [Read more...]

One of the most frequently-asked questions by those looking at the independent business scene is: "How many are for sale?" Right on the heels of that question comes another: "How many actually sell?" To determine how many of these businesses are for sale at any one time, and what percentage of these get sold, it is necessary first to define terms by business category. The industry groups that account for the majority of small to mid-sized business sales are: manufacturing, wholesale trade, retail trade, business and personal services, and household/miscellaneous services. Using these categories as components, the total number of businesses that apply to our "survey" is approximately 6.3 million. Of this total, businesses that are for sale at any one time account for roughly 20 percent. There is naturally going to be a higher percentage of businesses for sale that employ four or less workers, but some independent business experts feel that fewer of these businesses--at least … [Read more...]

Use the following criteria to separate the serious buyers from window-shoppers. (Add up plus points, subtract minus points. The serious buyer will rate a 6 or above.) Minus Point Factors -4 needs outside financing (excluding home equity) -4 been looking for 6 months or more -3 no available cash -3 still working in corporate world -2 spouse not supportive of buying a business -2 uses a legal pad or clipboard and takes too many notes -2 feels leisurely about finding the "just-right" business -1 now renting (although has lived in area for some time) -1 under 25 or over 62 Plus Point Factors +3 does not have a job or has just resigned +3 understands that books and records are not the only indicators of value +2 has enough money to buy a business +2 no dependents +2 family member or close relative has been a business owner +2 willing to take the time to look without a lot of notice +1 location is not a prime consideration +1 age 25 to 62 +1 skilled worker or … [Read more...]

Family-owned businesses do have some options when it comes time to sell.  Selling the entire business may not be the best choice when there are no other family members involved.  Here are some choices to be considered: Internal Transactions Hire a CEO – This approach is a management exit strategy in which the owner retires, lives off the company’s dividends and possibly sells the company many years later. Transition ownership within the family – Keeping the business in the family is a noble endeavor, but the parent seldom liquefies his investment in the short-term, and the son or daughter may run the company into the ground. Recapitalization – By recapitalizing the company by increasing the debt to as much as 70 percent of the capitalization, the owner(s) is/are able to liquefy most of their investment now with the intent to pay down the debt and sell the company later on. Employee Stock Ownership Plan (ESOP) – Many types of companies such as construction, engineering, and … [Read more...]